There is significant pent up demand. Household formation is below its historical average, suggesting that a return to normal would create significant demand for housing. Of course many households could choose to rent rather than buy. But the analysts believe that the decline in homeownership rates is more likely cyclical. The homeownership rate among 25-to-44-year-olds is slightly below the average that prevailed between 1985 to 1994, which the analysts believe should be the benchmark for "normal" homeownership rates. Homeownership in this period hovered between 63% and 65% before it began its rise in the 90s and peaked at 69% in 2005. If the decline is structural, then homebuyers must either have a shift in their attitudes toward homeownership or they do not have sufficient savings for a home or might fail to qualify for a home loan. But a Gallup survey shows that a vast majority of non-homeowners aged 18 to 49 plan to buy a home in the next 10 years. Also, looking at the distribution of wealth among 25-to-44-year-old renters with a household income of more than $50,000, Goldman found that nearly 40% had enough savings for a 10% downpayment and closing costs on a $200,000 house. Also nearly half of these renters have a debt to income ratio of less than 5%, which means they have the capacity to take on debt. New mortgage regulations stipulate a debt to income ratio of not more than 43%.
Housing Bears' Concerns Are Overblown, Goldman Sachs Says
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts